“Results for the quarter would be consistent with the comments that we’ve made about elevated litigation expenses continuing for 2014,” Naratil told investors at a conference in London today when asked about earnings in the period. He added that he would “caution everyone on trying to extrapolate information on the full quarter from just two single data points” after UBS indicated yesterday earnings for July and August already exceed analyst third-quarter estimates.

UBS said in a prospectus for investors yesterday that some authorities have started settlement talks in the probe into the alleged rigging of foreign exchange markets. The proposed terms include “material” monetary penalties and findings that the bank failed to have adequate controls in place. Other regulators may also seek to start settlement talks “in the near future,” the lender said without elaborating.

“A significant part of our transformation is focused on conduct, improving our internal controls and building a culture of accountability,” Naratil, 52, said. “It’s also clear that failure to comply comes at a high price and the industry will continue to address legacy issues for some time to come. That’s why we continue to expect elevated litigation costs this year. However, we do not control the timing of resolution.”

UBS may book about 3 billion francs ($3.2 billion) in litigation costs between the second half of this year and 2016, Huw van Steenis and Canset Eroglu, analysts at Morgan Stanley with an overweight rating on the shares, said in a note today. “Litigation remains the key near term focus” and settling of outstanding issues “should be the catalyst” for higher dividends, they wrote.

To contact the reporter on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net To contact the editors responsible for this story: Elisa Martinuzzi at emartinuzzi@bloomberg.net Simone Meier, Mark Bentley